Index Number Biases During Price Liberalization
August 1, 1991
More Formats on IMF eLibrary
Order a Print CopyDisclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary
When a formerly centrally-planned economy frees prices and allows or compels producers to respond to market signals, conventional measures tend to severely overstate short–run output decline and inflation. In part the overstatement stems from neglect of private sector activity, or from belated recognition of inflation previously disguised as quality improvements. Even when individual prices and outputs are correctly measured, however, shifts in relative prices consequent to price decontrol create a serious aggregation problem. Moreover, the standard indices ignore the deflationary trends in black markets. Superior growth and inflation indices are devised using a combination of official and black market prices.
Subject: Economic sectors, Inflation, Informal economy, Monetary base, Money, Price controls, Price indexes, Prices
Keywords: base period, black market price, deficit goods, deflation rate, Eastern Europe, Inflation, inflation rate, Informal economy, Monetary base, money supply, Price controls, price index, Price indexes, quantity index, utility function, WP
Pages:
33
Volume:
1991
DOI:
Issue:
076
Series:
Working Paper No. 1991/076
Stock No:
WPIEA0761991
ISBN:
9781451849776
ISSN:
1018-5941
Notes
Also published in Staff Papers, Vol. 39, No. 2, June 1992.
